What is the Earned Income Tax Credit?

Tax Tips

The Earned Income Tax Credit (EITC) is a refundable tax credit you can claim on your tax credit if you work and have low wages. The primary intent of the credit is to give a tax credit to qualifying individuals and couples who have qualifying children, with the credit increasing with each additional qualifying child.

What’s nice about a tax credit is that it’s a dollar for dollar reduction of your tax liability. A tax deduction is simply a reduction in income, so how much you get off your taxes will depend on your tax bracket. If you’re in the 25% tax bracket, a $1,000 tax deduction will reduce your taxes by $250. A tax credit of $1,000 will reduce your taxes by an entire $1,000.

Who qualifies to receive the tax credit?

You need to satisfy the following conditions:

  • You must have a valid Social Security Number,
  • You must have earned income,
  • You must be a US citizen or resident alien all year (or a nonresident married to one and filing a joint return),
  • You must not be filing as a married filing separately,
  • You cannot be the qualifying child of someone else,
  • If you don’t have a qualifying child, you must be between the ages 25 and 65 by the end of the year, live in the US for more than half a year, and cannot be the dependent of someone one,
  • You must satisfy income restrictions on the EITC.

The income restrictions on the EITC limits who can receive the EITC and is based on the number of qualifying children you will claim.

  • 3+ children: Must have earned income less than $43,352, $48,362 if married filing jointly.
  • 2 children: Must have earned income less than $40,363, $45,373 if married filing jointly.
  • 1 children: Must have earned income less than $35,535, $40,545 if married filing jointly.
  • No children: Must have earned income less than $13,460, $18,470 if married filing jointly.

What is a qualifying child? A qualifying child has to meet three requirements:

  • Relationship: They must be your son, daughter, stepchild, eligible foster child, adopted or descendant (grandchildren) or they must be a brother, sister, half brother/sister, step-brother/sister, or descendant of any of them (nieces and nephews).
  • Age: They must be under the age of 19 and younger than you (and spouse if filing jointly). They can be older than 19 if they are a full-time student, but must be under 24 and younger than you (and spouse if filing jointly). Or they are permanently and totally disabled (age is irrelevant in this case).
  • Residency: The child must have lived with you in the US for more than half of the year.

Whew! So, if you satisfy all of those requirements, you might be curious how you get the EITC right? Well, the IRS has made it easy to figure it out with the EITC Assistant. The EITC Assistant will not only help you find out if you’re eligible, they will estimate the amount of credit you will receive through the EITC. As a sneak peek, here are the limits to the credit:

  • 3+ children: $5,666
  • 2 children: $5,036
  • 1 children: $3,050
  • No children: $457

Do you qualify for the EITC?

Read more about the EITC.

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